720 Cases of Suspected Naked Short Selling Under Audit... Financial Services Commission Warns "Be Careful of Short Selling Stock Changes on the 11th"

[Asia Economy Reporter Ji Yeon-jin] Since the partial resumption of short selling on the 3rd of last month, financial authorities have been conducting audits on 720 suspected cases of naked short selling.

The Financial Services Commission (FSC) announced on the 3rd that it has established a monitoring system with the Korea Exchange (KRX) to strengthen the detection of short selling and is closely monitoring the market.

The KRX selected about 300 cases for inspection through an analysis of trading patterns and conducted in-depth investigations into illegal short selling and violations of the uptick rule. If any legal violations are found after the audit, the Exchange plans to notify the FSC's Capital Market Investigation Division and the Financial Supervisory Service.

Additionally, audits are being conducted on about 120 cases of settlement quantity shortages, which may indicate naked short selling, and 600 suspected "sell first, buy later" transactions. Settlement quantity shortages occur when accounts lack sufficient shares on the settlement date (two days after the trade) and engage in naked short selling without borrowing shares, or when foreign investors fail to submit settlement instructions to custodians. "Sell first, buy later" transactions involve selling shares not owned first and then buying the same quantity on the same day to settle, which may also indicate naked short selling.

The FSC stated, "The government is sequentially inspecting whether securities firms have smoothly established and are operating systems to block and detect illegal short selling. Going forward, we will continue to operate the stock market transparently and fairly through in-depth inspections of suspicious trades by the Market Surveillance Committee."

Furthermore, starting from the 11th of this month, as the components of the KOSPI 200 and KOSDAQ 150 change, the list of stocks eligible for short selling will also change, so short selling investors are urged to exercise special caution. Currently, 8 stocks in the KOSPI 200 and 16 stocks in the KOSDAQ 150, where short selling is permitted, are expected to be changed.